• Our HoR Isnaputra Iskandar and team set idx 2019 target at 7100 on expectation the macro picture will gradually improve and be less volatile than 2018. BI will continue to implement pro-active market policies and our Maybank strategists are long Indonesia in their 2019 outlook. Politics is not an issue in our view.
• We think global economy will remain challenging, and as such we expect Indonesia’s monetary policy to lean towards currency stabilization.
• We forecast a 50bps rate increase in 2019, lower than 2018’s 175bps. Oil price is the wild card in our base case assumptions for the current account deficit (CAD), currency, inflation and interest rate. ...See More
• We forecast the economy in 2019 to remain resilient, despite volatilities, at c. 5% YoY GDP growth, similar to 2018. The growth is likely to be supported by consumption (+5%) and investment (+6.4%). We forecast 2019 market earnings growth (with and without commodity companies) of 11.7-12.3%, driven by almost all sectors.
• With low oil prices and a stable IDR, there could be potential upside to our 11.7% growth forecast and this will benefit the cement and consumer sectors.
• Elections: what’s next? We expect the elections in April to be smooth and peaceful. There is no direct correlation between elections and GDP, but we note a tendency for rising fund flows and IDR appreciation ahead of past elections.
• Our FX team forecasts the IDR could strengthen 10% into the elections. We think whoever wins the election, will focus on the same major issues: infrastructure, logistics, income distribution and quality of human capital.
• Risk factors : global volatility, policy transmission time lag, unfavourable election outcome, disappointing earnings
• IHSG 7100 is based on 17x FY19E P/E (+1SD above mean) and 11.7% EPS growth.
• Our top picks are ASII, BBNI, BSDE, GGRM, ICBP, PTBA, PWON, RALS, SMGR and SMRA.
• Links : https://factsetpdf.maybank-ke.com/PDF/120220_MACRO__2f74e196389f4d79a777984903401b2a.pdf?

Maybank Kim Eng Research : Indonesia Strategy 2019 Outlook – Bit by Bit
• Our HoR Isnaputra Iskandar and team set idx 2019 target at 7100 on expectation the macro picture will gradually improve and be less volatile than 2018. BI will continue to implement pro-active market policies and our Maybank strategists are long Indonesia in their 2019 outlook. Politics is not an issue in our view.
• We think global economy will remain challenging, and as such we expect Indonesia’s monetary policy to lean towards currency stabilization.
• We forecast a 50bps rate increase in 2019, lower than 2018’s 175bps. Oil price is the wild card in our base case assumptions for the current account deficit (CAD), currency, inflation and interest rate.
• We forecast the economy in 2019 to remain resilient, despite volatilities, at c. 5% YoY GDP growth, similar to 2018. The growth is likely to be supported by consumption (+5%) and investment (+6.4%). We forecast 2019 market earnings growth (with and without commodity companies) of 11.7-12.3%, driven by almost all sectors.
• With low oil prices and a stable IDR, there could be potential upside to our 11.7% growth forecast and this will benefit the cement and consumer sectors.
• Elections: what’s next? We expect the elections in April to be smooth and peaceful. There is no direct correlation between elections and GDP, but we note a tendency for rising fund flows and IDR appreciation ahead of past elections.
• Our FX team forecasts the IDR could strengthen 10% into the elections. We think whoever wins the election, will focus on the same major issues: infrastructure, logistics, income distribution and quality of human capital.
• Risk factors : global volatility, policy transmission time lag, unfavourable election outcome, disappointing earnings
• IHSG 7100 is based on 17x FY19E P/E (+1SD above mean) and 11.7% EPS growth.
• Our top picks are ASII, BBNI, BSDE, GGRM, ICBP, PTBA, PWON, RALS, SMGR and SMRA.
• Links : https://factsetpdf.maybank-ke.com/PDF/120220_MACRO__2f74e196389f4d79a777984903401b2a.pdf?

U.S. equities recovered from the lows of the day after a late rally in large technology stocks helped to propel the Nasdaq 100 higher, in what was the biggest reversal for the index since April. The S&P 500 Index ended in negative territory.

Financial markets remained volatile on bets that the trade truce between China and the U.S. won’t last after the arrest of Huawei’s chief financial officer.

Bank shares in the S&P 500 fell as much as 3.9 percent before closing down 1.4 percent, as Treasury yields slid to the lowest since August.

Helping to ease anxiety were comments from two regional Federal Reserve presidents urging policy caution from the U.S. central bank amid mounting economic uncertainties and recent volatility in financial markets.

》Crude Collapse Continues

Crude dropped the most in almost two weeks amid signals that OPEC, Russia and other aligned oil producers won’t curb output enough to erase a supply overhang. Futures in New York declined as much as 5 percent on Thursday before recovering somewhat.

Saudi Arabian Oil Minister Khalid Al-Falih said in Vienna that he was not confident OPEC and allied oil producers will reach an agreement when the Organization of Petroleum Exporting

Countries meets again with allies on Friday. A proposal for a combined 1 million barrel-a-day cut by OPEC and non-OPEC is being discussed. “There continues to be uncertainty with what OPEC will do,” said Brian Kessens, who helps manage $16 billion at Tortoise in Leawood, Kansas. “Right now, it’s a market that is assuming the worst.”

》Huawei Looms Large

Huawei Technologies Co. Chief Financial Officer Wanzhou Meng is part of an ongoing investigation by U.S. prosecutors into whether Huawei violated banking laws as it sought to evade sanctions against Iran by routing a series of transactions through HSBC Holdings Plc, according to a person briefed on the matter.

President Donald Trump wasn’t aware the U.S. had requested Meng’s extradition from Canada before he joined Chinese President Xi Jinping for dinner on Saturday, a White House official said Thursday.

Still, the arrest now threatens to make the U.S.-China conflict much worse. Meng is the daughter of the company’s founder, a national champion at the forefront of China President Xi Jinping’s efforts for China to be self-sufficient in strategic technologies.

While the U.S. routinely asks allies to extradite drug lords, arms dealers and other criminals, arresting a major Chinese executive like this is rare — if not unprecedented.

》Time for Answers

Renault SA is aiming to reach in about a week the first conclusions of an internal probe into whether the pay packagesof Carlos Ghosn, along with the French carmaker’s other top managers, were properly disclosed to shareholders, according to people familiar with the matter.

The ongoing investigation focuses on their salaries and other benefits at Renault said the people, who asked not to be named because the information isn’t public.

The probe is being led by Eric Le Grand, a former head of security who was recently appointed as an ethics and compliance officer, and another Renault insider, Claude Baland, a 68-year-old former top civil servant, they said.

》Crashing Out of Crypto

The plunge in the cryptocurrencymarket is weighing on the software-development community that spawned over 1,000 digital coins amid dreams of independence from traditional financial systems and instant wealth.

ETCDEV, the startup that led development on Ethereum Classic, which is among the top 20 coins with a market capitalization of about $400 million, announced this week that it’s shuttering operations due to a funding crunch.

Joseph Lubin’s ConsenSys, one of the largest crypto-related software startups based in New York, said Thursday that its workforce will be reduced by 13 percent as part of a reorganization.

Many of the companiesare suffering because they kept a portion of their funds in digital assets, whether in tokens they sold through initial coin offerings or in Bitcoin and Ether, which served as the preferred means of exchange in the crypto world. As prices collapsed this year, by more than 90 percent in some cases, and their so-called digital wallets thinned out, many developers found they couldn’t raise additional funding.

What we’ve been reading
Here’s what caught our eye over the past 24 hours.

Here are the 50 people who defined global business in 2018.

The Huawei arrest will test China-Canada ties too.

Beijing’s new drug-buying program is causing share-price pain.

Pakistan’s military making an unusually strong effort to mend ties with India.

Shanghai is now the most expensive city in Asia for the rich.
***

FIVE THINGS TO START YOUR DAY
By: Bloomberg News
From stocks to bonds to oil, it was mayhem across markets Thursday.
Here are some of the things people are talking about:
》A Whirlwind Trip
U.S. equities recovered from the lows of the day after a late rally in large technology stocks helped to propel the Nasdaq 100 higher, in what was the biggest reversal for the index since April. The S&P 500 Index ended in negative territory.
Financial markets remained volatile on bets that the trade truce between China and the U.S. won’t last after the arrest of Huawei’s chief financial officer.
Bank shares in the S&P 500 fell as much as 3.9 percent before closing down 1.4 percent, as Treasury yields slid to the lowest since August.
Helping to ease anxiety were comments from two regional Federal Reserve presidents urging policy caution from the U.S. central bank amid mounting economic uncertainties and recent volatility in financial markets.
》Crude Collapse Continues
Crude dropped the most in almost two weeks amid signals that OPEC, Russia and other aligned oil producers won’t curb output enough to erase a supply overhang. Futures in New York declined as much as 5 percent on Thursday before recovering somewhat.
Saudi Arabian Oil Minister Khalid Al-Falih said in Vienna that he was not confident OPEC and allied oil producers will reach an agreement when the Organization of Petroleum Exporting
Countries meets again with allies on Friday. A proposal for a combined 1 million barrel-a-day cut by OPEC and non-OPEC is being discussed. “There continues to be uncertainty with what OPEC will do,” said Brian Kessens, who helps manage $16 billion at Tortoise in Leawood, Kansas. “Right now, it’s a market that is assuming the worst.”
》Huawei Looms Large
Huawei Technologies Co. Chief Financial Officer Wanzhou Meng is part of an ongoing investigation by U.S. prosecutors into whether Huawei violated banking laws as it sought to evade sanctions against Iran by routing a series of transactions through HSBC Holdings Plc, according to a person briefed on the matter.
President Donald Trump wasn’t aware the U.S. had requested Meng’s extradition from Canada before he joined Chinese President Xi Jinping for dinner on Saturday, a White House official said Thursday.
Still, the arrest now threatens to make the U.S.-China conflict much worse. Meng is the daughter of the company’s founder, a national champion at the forefront of China President Xi Jinping’s efforts for China to be self-sufficient in strategic technologies.
While the U.S. routinely asks allies to extradite drug lords, arms dealers and other criminals, arresting a major Chinese executive like this is rare — if not unprecedented.
》Time for Answers
Renault SA is aiming to reach in about a week the first conclusions of an internal probe into whether the pay packagesof Carlos Ghosn, along with the French carmaker’s other top managers, were properly disclosed to shareholders, according to people familiar with the matter.
The ongoing investigation focuses on their salaries and other benefits at Renault said the people, who asked not to be named because the information isn’t public.
The probe is being led by Eric Le Grand, a former head of security who was recently appointed as an ethics and compliance officer, and another Renault insider, Claude Baland, a 68-year-old former top civil servant, they said.
》Crashing Out of Crypto
The plunge in the cryptocurrencymarket is weighing on the software-development community that spawned over 1,000 digital coins amid dreams of independence from traditional financial systems and instant wealth.
ETCDEV, the startup that led development on Ethereum Classic, which is among the top 20 coins with a market capitalization of about $400 million, announced this week that it’s shuttering operations due to a funding crunch.
Joseph Lubin’s ConsenSys, one of the largest crypto-related software startups based in New York, said Thursday that its workforce will be reduced by 13 percent as part of a reorganization.
Many of the companiesare suffering because they kept a portion of their funds in digital assets, whether in tokens they sold through initial coin offerings or in Bitcoin and Ether, which served as the preferred means of exchange in the crypto world. As prices collapsed this year, by more than 90 percent in some cases, and their so-called digital wallets thinned out, many developers found they couldn’t raise additional funding.
What we’ve been reading
Here’s what caught our eye over the past 24 hours.
Here are the 50 people who defined global business in 2018.
The Huawei arrest will test China-Canada ties too.
Beijing’s new drug-buying program is causing share-price pain.
Pakistan’s military making an unusually strong effort to mend ties with India.
Shanghai is now the most expensive city in Asia for the rich.
***

Meeting with Ignasius Jonan, Minister for Energy and Mineral Resources
Summary: On 14 November 2018, we conducted a meeting with the Minister for Energy and Mineral Resources, Ignasius Jonan, which was attended by 13 institutions consisting of foreign and local investors. During this meeting, the energy regulations were clarified particularly: i) DMO fulfillment and penalties, ii) Transfer quota, iii) No change on gas DMO, iv) Freeport divestment, and v) Indonesia’s O&G prospects. The regulations discussed would change the outlook for coal, oil, and gas in 2019. Below are our key takeaways.

...See More
On coal, the Minister stated that DMO fulfillment is non-negotiable for coal miners and said that the ministry will enforce sanctions on miners failing to meet the quota. Note that the sanction willl be on the reduced production quota for 2019, set at 4x DMO realization in 2018. We believe that this will translate into a bidding war for excess DMO by miners that exceeded their own quota in 2018. This will benefit Bukit Asam (Not Rated) and Kideco (a subsidiary of Indika/INDY IJ, IDR2.620, Not Rated), which exceeded their DMO quota as of 9M18

Bukit Asam said that it has received interested enquiries for its excess DMO quota, but has not agreed on the price, with the current bid price being USD8-10/tonne lower than its asking price. But we believe there is an actual shortage of DMO quota given the cut-off date for the calculation of excess/shortage at the end of September, i.e. excess sales to the domestic market in 4Q18 did not count towards the excess DMO quota. Meanwhile, miners will need to buy quota based on the expected DMO shortage for their 2018 production.

As for gas DMO, Mr. Jonan said that nothing has changed despite the media reporting a plan to cap the gas DMO price at USD6/mmbtu. The regulation remains that gas prices at the wellhead and plant gate are capped at 8% and 14.5% of the Indonesian Crude Price (ICP) respectively. With ICP at USD77.6/bbl in October, this translates into a plant gate cap of USD11.2/mmbtu. Given the formula, we believe that Perusahaan Gas Negara (PGN) can maintain its distribution margin to PLNif the ICP remains above USD55/bbl.

Freeport’s mining license will be released after the divestment process is completed. The divestment is currently in progress with shareholder meetings, agreements, etc. The process is expected to be completed by the end of this year.

The Minister was also bullish on the exploration prospect of Indonesia’s O&G fields following the shift to a gross split policy, which he said has been warmly accepted by both global and local O&G players. He believes that the regulation promotes efficiency because contractors stand to benefit from it. Mr. Jonan also denied the rise of resource nationalism and said the reason Pertamina obtained several large termination blocks was that it was more aggressive in its bidding.

Bahana (DX) 14 Nov 2018
Meeting with Ignasius Jonan, Minister for Energy and Mineral Resources
Summary: On 14 November 2018, we conducted a meeting with the Minister for Energy and Mineral Resources, Ignasius Jonan, which was attended by 13 institutions consisting of foreign and local investors. During this meeting, the energy regulations were clarified particularly: i) DMO fulfillment and penalties, ii) Transfer quota, iii) No change on gas DMO, iv) Freeport divestment, and v) Indonesia’s O&G prospects. The regulations discussed would change the outlook for coal, oil, and gas in 2019. Below are our key takeaways.
On coal, the Minister stated that DMO fulfillment is non-negotiable for coal miners and said that the ministry will enforce sanctions on miners failing to meet the quota. Note that the sanction willl be on the reduced production quota for 2019, set at 4x DMO realization in 2018. We believe that this will translate into a bidding war for excess DMO by miners that exceeded their own quota in 2018. This will benefit Bukit Asam (Not Rated) and Kideco (a subsidiary of Indika/INDY IJ, IDR2.620, Not Rated), which exceeded their DMO quota as of 9M18
Bukit Asam said that it has received interested enquiries for its excess DMO quota, but has not agreed on the price, with the current bid price being USD8-10/tonne lower than its asking price. But we believe there is an actual shortage of DMO quota given the cut-off date for the calculation of excess/shortage at the end of September, i.e. excess sales to the domestic market in 4Q18 did not count towards the excess DMO quota. Meanwhile, miners will need to buy quota based on the expected DMO shortage for their 2018 production.
As for gas DMO, Mr. Jonan said that nothing has changed despite the media reporting a plan to cap the gas DMO price at USD6/mmbtu. The regulation remains that gas prices at the wellhead and plant gate are capped at 8% and 14.5% of the Indonesian Crude Price (ICP) respectively. With ICP at USD77.6/bbl in October, this translates into a plant gate cap of USD11.2/mmbtu. Given the formula, we believe that Perusahaan Gas Negara (PGN) can maintain its distribution margin to PLNif the ICP remains above USD55/bbl.
Freeport’s mining license will be released after the divestment process is completed. The divestment is currently in progress with shareholder meetings, agreements, etc. The process is expected to be completed by the end of this year.
The Minister was also bullish on the exploration prospect of Indonesia’s O&G fields following the shift to a gross split policy, which he said has been warmly accepted by both global and local O&G players. He believes that the regulation promotes efficiency because contractors stand to benefit from it. Mr. Jonan also denied the rise of resource nationalism and said the reason Pertamina obtained several large termination blocks was that it was more aggressive in its bidding.

3Q18 earnings increase helped largely by lower opex
The company reported 10% QoQ increase in 3Q18 net profit as flat revenue (-0.3%) and declined gross profit (-13.7%) were more than offset by 35% decrease in Opex. Flat revenue came on the back of 23% decline in upstream revenue post expiry of Sanga- Sanga block despite 6% higher in distribution revenue to USD670 mn on 5% hike in distribution volume to 875 mmscfd owing to higher volume on Asian Games event and 1% hikes in ASP to USD8.4/mmbtu. Gross profit dropped by 14% QoQ weighed down by worsened profitability at upstream units where GPM contracted by 1,860bps to 19.7%. However, operating profit still managed to grow by 12% QoQ to USD130 mn as opex dropped by 35% on normalization after Lebaran bonus and employee benefit adjustment in 2Q18. Below operating line, the profitability was also helped by lower tax payment.

No impact on planned DMO gas price
The Energy and Mineral Resources Ministry has proposed the issuance of a regulation to impose a price ceiling for natural gas, particularly for electricity plants, to help state- owned electricity company PLN provide affordable rates to its customers and help PLN improve its financial performance. The gas prices for power plants would be set at DMO price of USD6/mmbtu while currently 41% of PGAS distribution volume is sold to power plant. In contrast to our initial view that DMO gas price will negatively impact earnings, our discussion with PGAS official reveals no impact to earnings. DMO price cap refers to upstream price (excluding distribution margin). The current policy of 7/11 for midstream gas business mentioned that trading spread on upstream gas cost at 7% plus pipeline IRR at 11% USD2.3/mmbtu.

Earnings and TP revised up on solid results
Following stronger-than-expected 9M18 results, we revised up our 2018-19F earnings forecasts by 29-13% to USD289-294 mn. This mainly resulted from 5-3% increase in distribution volume forecasts to 843-894 mmscfd which lifted our revenue forecast by 4.5- 1.1%. We also fine tuned our costs and opex ratio to revenue assumption to align with 9M18 numbers. All things considered, we raise our target price on PGAS to Rp2,720 (prev: Rp2,600 ). As our new TP still offers 31% upside potential, we maintain our Buy rating on PGAS. The completion of Pertagas acquisition may act as further catalyst for stock price.

Ciptadana (KI)
PGAS BUY UPGRADE TP 2720 (fr 2600)
9M18 results significantly above expectations
Perusahaan Gas Negara reported more than double YoY growth in 9M18 net income to USD218 mn, far above our and consensus expectations at 97-90% of respective FY18F. Strong profit growth was mainly driven by the combined 1) 13% YoY higher in revenue to USD2.45 bn buoyed by 11% increase in gas distribution volume (despite 2.3% lower in ASP to USD8.4 mn), which lifted gas distribution revenue to USD1.94 bn (+8% YoY) and 2) 40% increase in upstream (oil & gas revenue) to USD442 mn. As COGS (+10% YoY) and Opex (+5% YoY) increased at slower pace than revenue, operating profit jumped by 41% YoY to USD380 mn, almost reached our FY18F of USD383 mn. 9M18 GPM expanded by 210bps to 28% largely helped by 3,240bps expansion in upstream unit’s GPM to 24.6% from negative 7.8% a year ago, while gas distribution GPM contracted by 220bps to 30.8% as distribution margin declined to USD2.3/mmbtu vs USD2.5/mmbtu in 9M17.
3Q18 earnings increase helped largely by lower opex
The company reported 10% QoQ increase in 3Q18 net profit as flat revenue (-0.3%) and declined gross profit (-13.7%) were more than offset by 35% decrease in Opex. Flat revenue came on the back of 23% decline in upstream revenue post expiry of Sanga- Sanga block despite 6% higher in distribution revenue to USD670 mn on 5% hike in distribution volume to 875 mmscfd owing to higher volume on Asian Games event and 1% hikes in ASP to USD8.4/mmbtu. Gross profit dropped by 14% QoQ weighed down by worsened profitability at upstream units where GPM contracted by 1,860bps to 19.7%. However, operating profit still managed to grow by 12% QoQ to USD130 mn as opex dropped by 35% on normalization after Lebaran bonus and employee benefit adjustment in 2Q18. Below operating line, the profitability was also helped by lower tax payment.
No impact on planned DMO gas price
The Energy and Mineral Resources Ministry has proposed the issuance of a regulation to impose a price ceiling for natural gas, particularly for electricity plants, to help state- owned electricity company PLN provide affordable rates to its customers and help PLN improve its financial performance. The gas prices for power plants would be set at DMO price of USD6/mmbtu while currently 41% of PGAS distribution volume is sold to power plant. In contrast to our initial view that DMO gas price will negatively impact earnings, our discussion with PGAS official reveals no impact to earnings. DMO price cap refers to upstream price (excluding distribution margin). The current policy of 7/11 for midstream gas business mentioned that trading spread on upstream gas cost at 7% plus pipeline IRR at 11% USD2.3/mmbtu.
Earnings and TP revised up on solid results
Following stronger-than-expected 9M18 results, we revised up our 2018-19F earnings forecasts by 29-13% to USD289-294 mn. This mainly resulted from 5-3% increase in distribution volume forecasts to 843-894 mmscfd which lifted our revenue forecast by 4.5- 1.1%. We also fine tuned our costs and opex ratio to revenue assumption to align with 9M18 numbers. All things considered, we raise our target price on PGAS to Rp2,720 (prev: Rp2,600 ). As our new TP still offers 31% upside potential, we maintain our Buy rating on PGAS. The completion of Pertagas acquisition may act as further catalyst for stock price.

New factory OKI is probably the lowest cash-cost pulp producer in the world, thus driving TKIM’s profit growth. We estimate TKIM’s net profit at USD320/424mn for 2018F/2019F, respectively, driven by its new mill OKI contributing USD305/424mn for the respective years. OKI, which started operation in 3Q17 and is in the process of ramping up its production volume (1Q18: 550 k tons; annualized utilization rate: 79%). In turn, OKI’s profit contribution should be driven by its pulp utilization rising from 79% in 1Q18 to 100% in 2019 (pulp volume: 2.5/2.8mn tons in 2018F/2019F) with an EBITDA/ton of c.USD480. OKI has a 25% lower cash cost per ton vs. its sister company Indah Kiat Pulp & Paper [INKP IJ, IDR19,300, BUY], according to management (for more on INKP, please see our initiation report “Papermania”, 8 March 2018). The newer plant is designed for low cost and has : i) renewable energy utilization, ii) new machinery, and iii) a strategic location (close to its major forest concession areas). Indeed at a cash-cost per ton of c.USD210/ton, OKI ranks as the most efficient globally (see exhibit 6), and likely most profitable.

OKI’s eligibility for tax holiday to provide further earnings upside: Given the sizeable amount of new investment made through the mill development (c.USD4bn), OKI is eligible to claim a tax holiday from the government. The tax holiday program will be applicable for as long as 10 years under the scheme of 8 years zero-percent tax and 2 years (year 9th and year 10th) of 50% tax-rate discount. According to management, the administration for the tax holiday claim is already being processed. However, given its early stage of operation, we assume OKI starts its tax holiday in 2020F, and hence still apply a 25% corporate income tax rate for OKI in our 2019F model (0% for 2020F). If the tax holiday were to be applied in 2019, we estimate TKIM’s 2019F net profit would rise 45% y-y to USD1.2bn, driving up our fair-value estimate further to IDR24,525.

Valuation still attractive at current levels: TKIM shares trade at 2018F/2019F PERs of 10/7x, respectively. We see this as undemanding, given its global peers are trading at 2018F/2019F mean PERs of 14/11x, based on the Bloomberg consensus. Also, we believe TKIM is more attractive than INKP given its i) lower valuation (INKP: PER of 10/9x in 2018F/2019F), ii) higher ROE (TKIM: 24% vs. INKP’s 18% in 2018F) and iii) stronger earnings growth profile (TKIM: 39% vs. INKP: 13% CAGR in 2018-20F), on our forecasts.

Pabrik Kertas Tjiwi Kimia (TKIM IJ): Initiation: World’s Lowest Cash-Cost Pulp Producer
Daiwa-Bahana Sekuritas
Gregorius Gary (gregorius@bahana.co.id)
Andri Ngaserin (andri@bahana.co.id)
Rating: BUY (Initiation)
Target price: IDR20,600 (Initiation)
Share price: IDR14,225
To see the full version of this report, please open https://goo.gl/xS6DEG
Summary: We initiate coverage on Tjiwi Kimia (TKIM) with a BUY rating and 12-month TP of IDR20,600. Our TP is based on a target PER multiple of c.12x applied to our average 2018-19F EPS and implies 45% upside potential. Despite TKIM’s recent strong share price performance (up almost 4x ytd), we believe TKIM’s risk-reward remains attractive. Our positive view is mainly driven by: 1) our bullish view on the pulp and paper price outlook given tightening global supply-demand conditions and more importantly, 2) growing net profit share from its associate company, OKI (not listed; 49.1% owned by TKIM). We estimate these factors combined should translate into a strong net profit CAGR of 39% over 2018-20F, thus supporting its valuation to further re-rate going forward.
New factory OKI is probably the lowest cash-cost pulp producer in the world, thus driving TKIM’s profit growth. We estimate TKIM’s net profit at USD320/424mn for 2018F/2019F, respectively, driven by its new mill OKI contributing USD305/424mn for the respective years. OKI, which started operation in 3Q17 and is in the process of ramping up its production volume (1Q18: 550 k tons; annualized utilization rate: 79%). In turn, OKI’s profit contribution should be driven by its pulp utilization rising from 79% in 1Q18 to 100% in 2019 (pulp volume: 2.5/2.8mn tons in 2018F/2019F) with an EBITDA/ton of c.USD480. OKI has a 25% lower cash cost per ton vs. its sister company Indah Kiat Pulp & Paper [INKP IJ, IDR19,300, BUY], according to management (for more on INKP, please see our initiation report “Papermania”, 8 March 2018). The newer plant is designed for low cost and has : i) renewable energy utilization, ii) new machinery, and iii) a strategic location (close to its major forest concession areas). Indeed at a cash-cost per ton of c.USD210/ton, OKI ranks as the most efficient globally (see exhibit 6), and likely most profitable.
OKI’s eligibility for tax holiday to provide further earnings upside: Given the sizeable amount of new investment made through the mill development (c.USD4bn), OKI is eligible to claim a tax holiday from the government. The tax holiday program will be applicable for as long as 10 years under the scheme of 8 years zero-percent tax and 2 years (year 9th and year 10th) of 50% tax-rate discount. According to management, the administration for the tax holiday claim is already being processed. However, given its early stage of operation, we assume OKI starts its tax holiday in 2020F, and hence still apply a 25% corporate income tax rate for OKI in our 2019F model (0% for 2020F). If the tax holiday were to be applied in 2019, we estimate TKIM’s 2019F net profit would rise 45% y-y to USD1.2bn, driving up our fair-value estimate further to IDR24,525.
Valuation still attractive at current levels: TKIM shares trade at 2018F/2019F PERs of 10/7x, respectively. We see this as undemanding, given its global peers are trading at 2018F/2019F mean PERs of 14/11x, based on the Bloomberg consensus. Also, we believe TKIM is more attractive than INKP given its i) lower valuation (INKP: PER of 10/9x in 2018F/2019F), ii) higher ROE (TKIM: 24% vs. INKP’s 18% in 2018F) and iii) stronger earnings growth profile (TKIM: 39% vs. INKP: 13% CAGR in 2018-20F), on our forecasts.

Three reasons why we like CTRA...See More
We initiate CTRA with a Buy and a TP of 1,700 (44% upside) on the back of: 1) Nation-wide exposure, made even better post-CTRS 100% incorporation, 3) Main beneficiary of currently cheap, incentive-rich Indonesia mortgage, and 3) Potential upside from government’s nation-wide infrastructure strengthening effort given their asset distribution.

The first to absorb commodity-driven demand surge

As of now, CTRA operates 71 projects spread across the country, while 35% are being located within Indonesia’s top-3 regions with highest growth rate. As commodity prices began steadily creep in value, we expect region’s average income to increase as well, thus giving CTRA an edge over its competition as none other listed developer has as widely-spread asset distribution as they do.

Valuation

Our TP is derived using DCF for both development property and capitalization on 2017’s NOI for investment property (see p.3 for valuation details). CTRA currently trades at 18.7x 2017 PE and 16% discount to its replacement cost.

Research Division

PT. Trimegah Sekuritas Indonesia, Tbk.

18th Fl, Artha Graha Building

Jl. Jend. Sudirman Kav. 52-53, Jakarta 12190

Phone : (021) 2924-9088 Fax. : (021) 2924-9163

Mail : research@trimegah.com

LG: CTRA TP Rp 1700
The Cheapest & Laggard Stock
Three reasons why we like CTRA
We initiate CTRA with a Buy and a TP of 1,700 (44% upside) on the back of: 1) Nation-wide exposure, made even better post-CTRS 100% incorporation, 3) Main beneficiary of currently cheap, incentive-rich Indonesia mortgage, and 3) Potential upside from government’s nation-wide infrastructure strengthening effort given their asset distribution.
The first to absorb commodity-driven demand surge
As of now, CTRA operates 71 projects spread across the country, while 35% are being located within Indonesia’s top-3 regions with highest growth rate. As commodity prices began steadily creep in value, we expect region’s average income to increase as well, thus giving CTRA an edge over its competition as none other listed developer has as widely-spread asset distribution as they do.
Valuation
Our TP is derived using DCF for both development property and capitalization on 2017’s NOI for investment property (see p.3 for valuation details). CTRA currently trades at 18.7x 2017 PE and 16% discount to its replacement cost.
Research Division
PT. Trimegah Sekuritas Indonesia, Tbk.
18th Fl, Artha Graha Building
Jl. Jend. Sudirman Kav. 52-53, Jakarta 12190
Phone : (021) 2924-9088 Fax. : (021) 2924-9163
Mail : research@trimegah.com

WIKA: Clarification on HSR cancellation rumor
• Yesterday, WIKA share price dropped by -3.7%, deepest among the peers’ as there was market rumor on cancellation of HSR project.
• We checked with WIKA’s management, it mentioned that the project remains on going despite delay on loan disbursement. It mentioned that KCIC has fulfilled all the condition of precedents required by CDB. Hence, total loan of US$5.9bn with 2% fixed rate for 40 years an 10 years grace period is estimated to be disbursed by end of Aug-17.
• Despite delay in HSR project realization, WIKA mentioned that it will still achieve its FY17F target net profit of Rp1.2tr supported by better than expected other projects realization progress.

WIKA: Clarification on HSR cancellation rumor
• Yesterday, WIKA share price dropped by -3.7%, deepest among the peers’ as there was market rumor on cancellation of HSR project.
• We checked with WIKA’s management, it mentioned that the project remains on going despite delay on loan disbursement. It mentioned that KCIC has fulfilled all the condition of precedents required by CDB. Hence, total loan of US$5.9bn with 2% fixed rate for 40 years an 10 years grace period is estimated to be disbursed by end of Aug-17.
• Despite delay in HSR project realization, WIKA mentioned that it will still achieve its FY17F target net profit of Rp1.2tr supported by better than expected other projects realization progress.

- We remain Hold on Malindo Feedmill (MAIN) with a target price of IDR1,180.

- On the positive side, 2Q17 financial results likely improved QoQ on the back of the Ramadan celebration in May-June, and the government’s recent culling programs are also encouraging.

- On the other hand, we are concerned about 1) muted revenue growth due to weak purchasing power, 2) higher raw material costs due to corn import restrictions, and 3) last year’s high base effect.

<Market Headlines>

BBNI will strengthen the mid-upper segment (Bisnis Indonesia)
BBNI will encourage the growth of property industry in South Sulawesi, which was stagnant in the first half of the year.

MDRN to change its business focus (Bisnis Indonesia)
After all 7-Eleven outlets have been closed at the end of June 2017, MDRN will focus on distributing medical and printing equipment.

Amman Mineral is ready to go public for this year (Investor Daily)
PT Amman Nusa Tenggara (AMNT) as one of PT Medco Energi International Tbk (MEDC) subsidiaries will be ready to go public for this year. According to MEDC statements, AMNT has a special team to do that corporate action (go-public).

Intraco Penta will do right issue of IDR232.6bn (Investor Daily)
PT Intraco Penta Tbk (INTA) will issue new shares through right issue scheme with total target raising fund amounting IDR232.6bn. The exercise right is IDR200/share with ratio 13:7.

Realization of tax revenue in the first semester only up 9.6% (Kontan)
Tax revenues realization during the first semester of 2017 reached IDR571.9tr. The amount is up 9.6% over the same period last year.

Market comment by Taye Shim (taye.shim@miraeasset.com)
As largely expected, JCI kicked off the first trading day of 2H17 with a solid rally leading the index to a new record high. This is broadly in line with our BUY INDONESIA theme which we introduced end of last year. China's Caixin manufacturing PMI posted surprise expansion for the month of June (reported 50.4 vs. consensus 49.5) which was in line with the official PMI. This was supported by US ISM manufacturing PMI which printed 57.8, beating estimates of 55.2. Foreign investors were net buyers (IDR477bn) of the local market driving the rally. #RANKING CHANGES: TLKM (new historical high) is now undisputed largest market cap (IDR482.8tr) name in the JCI followed by BBCA (IDR451.6tr) and HMSP (IDR447.8tr). #BUYING CRITERIA? TLKM rallied 6% yesterday, driven by aggressive foreign net buying. We think foreign investors were BUYing INDONESIA proxies based on valuations. Post-rally valuation (17F P/E) for TLKM stands at 20.63x, BBCA @ 19.95x, HSMP @ 33.05x...See More
Market Indicator
JCI: 5,910.237 (+1.38%)
EIDO: 27.39 (+0.66%)
DJIA: 21,479.27 (+0.61%)
FTSE100: 7,377.09 (+0.88%)
USD/IDR: 13,368 (+0.15%)
10yr GB yield: 6.88% (+5bps)
Oil Price: 47.07 (+2.24%)
Foreign net purchase: IDR476.8bn

*ISM manufacturing index rises to 57.8 in June from 54.9, at highest level since 2014
*IHS Markit manufacturing PMI falls to 52.0 in June from 52.7
*Eurozone unemployment stays at 9.3% in May, lowest since March 2009
*U.K. manufacturing PMI slips to 3-month low at 54.3 in June, missing forecasts
*Eurozone June manufacturing PMI comes in at 57.4, compared with 57.3 flash estimate
*Germany's June manufacturing PMI comes in at 59.6, compared with 59.3 flash estimate
*France June manufacturing PMI comes in at 54.8, compared with 55.0 flash estimate

*TLKM +5.9%, leading gain in Indonesian stocks today after better-than-expected June inflation data, signaling recovery in consumer purchasing power.
*BIRD +3.9%. Blue Bird led gains in taxi company stocks amid positive sentiment over the government regulation of minimum and maximum prices for online car transportation services.
*MLPL +0.9%. Multipolar signed a $250 million loan from Bank Negara Indonesia.
*TINS +0.6%. In 1Q17, Timah posted a net profit of IDR66.5 billion after suffering a loss of IDR138.9 billion in the same period last year.
*ADRO +3.1%. Adaro Energy is rated BBB- with a positive outlook from Japan Credit Agency (JCA).
*ROTI -0.8%. In 1Q17, Nippon Indosari's net profit dropped by 65% yoy to IDR29.9 billion. Meanwhile, sales fell to IDR602.4 billion vs IDR610.9 billion.

- With SSMS still keeping its floor CPO extraction rate at 23.0% for 2017F, we believe its total FFB production will still see domination from nucleus plantation this year.

- As mentioned in our previous report on 2H17F palm oil sector outlook, “Dark clouds on the horizon”, SSMS targets a whopping 150,000 ha in total planted area by 2018 (from just 34,000 ha in 2014).

- Given the S&P’s rating upgrade, SSMS will refinance its bank loans through bond issuance. In our view, this should be a good time for SSMS to refinance its debt due to lower cost of funds going forward.

- We maintain our 12-month forward TP for SSMS at IDR1,900 with a Trading Buy call. We like SSMS mainly thanks to the young age profile of its palm oil plantations.

SGRO targets to increase CPO production by 30% (Kontan)
SGRO targets this year's CPO production volume to increase 20% to 30% compared to last year’s realization.

MNCN to maintain 10% growth performance (Bisnis Indonesia)
MNCN is optimistic to maintain a CAGR of 10% growth in the next 5 years, along with optimism that television industry will still dominate the Indonesian advertising market.

Double digit credit growth in sight (Bisnis Indonesia)
Bank’s credit growth in 1H17 is predicted to reach double digit, and will continue to improve in the next semester.

Multipolar gets a USD250mn of loans (Investor Daily)
PT Multipolar Tbk (MLPL) gets new borrowings amounting USD250mn from PT Bank Negara Indonesia Tbk (BBNI). The proceeds of that loans will be used for refinancing and working capital.

(Jakarta Globe)
Indonesian diaspora network presents leadership award to Jokowi for looking after expats
Indonesia to join FATF in war against money laundering and terrorism funding
Indonesia’s inflation rate picks up slightly in June
Indonesia hopes for additional USD10bn inflows after S&P upgrade, president says
It’s 7-eleven Indonesia, not the retail industry: Fitch
Most SE Asia stocks gain as China data cheers, Indonesia at record closing high

Mirae Asset Sekuritas Indonesia Daily Focus (July 4, 2017)
Research Team (research@miraeasset.co.id)
Market comment by Taye Shim (taye.shim@miraeasset.com)
As largely expected, JCI kicked off the first trading day of 2H17 with a solid rally leading the index to a new record high. This is broadly in line with our BUY INDONESIA theme which we introduced end of last year. China's Caixin manufacturing PMI posted surprise expansion for the month of June (reported 50.4 vs. consensus 49.5) which was in line with the official PMI. This was supported by US ISM manufacturing PMI which printed 57.8, beating estimates of 55.2. Foreign investors were net buyers (IDR477bn) of the local market driving the rally. #RANKING CHANGES: TLKM (new historical high) is now undisputed largest market cap (IDR482.8tr) name in the JCI followed by BBCA (IDR451.6tr) and HMSP (IDR447.8tr). #BUYING CRITERIA? TLKM rallied 6% yesterday, driven by aggressive foreign net buying. We think foreign investors were BUYing INDONESIA proxies based on valuations. Post-rally valuation (17F P/E) for TLKM stands at 20.63x, BBCA @ 19.95x, HSMP @ 33.05x
Market Indicator
JCI: 5,910.237 (+1.38%)
EIDO: 27.39 (+0.66%)
DJIA: 21,479.27 (+0.61%)
FTSE100: 7,377.09 (+0.88%)
USD/IDR: 13,368 (+0.15%)
10yr GB yield: 6.88% (+5bps)
Oil Price: 47.07 (+2.24%)
Foreign net purchase: IDR476.8bn
Foreign net purchase on single stocks (HOTS screen #0141)
TOP BUY: TLKM, UNTR, PGAS, INDF, BMRI
TOP SELL: ASII, BBRI, BBNI, JSMR, RALS
Most actively traded stocks (HOTS screen #0102)
TLKM, BBCA, BBRI, ASII, BMRI
Mirae Asset Sekuritas Indonesia Equity Movers
Investment Information Team (utfi.humaya@miraeasset.co.id)
*ISM manufacturing index rises to 57.8 in June from 54.9, at highest level since 2014
*IHS Markit manufacturing PMI falls to 52.0 in June from 52.7
*Eurozone unemployment stays at 9.3% in May, lowest since March 2009
*U.K. manufacturing PMI slips to 3-month low at 54.3 in June, missing forecasts
*Eurozone June manufacturing PMI comes in at 57.4, compared with 57.3 flash estimate
*Germany's June manufacturing PMI comes in at 59.6, compared with 59.3 flash estimate
*France June manufacturing PMI comes in at 54.8, compared with 55.0 flash estimate
*TLKM +5.9%, leading gain in Indonesian stocks today after better-than-expected June inflation data, signaling recovery in consumer purchasing power.
*BIRD +3.9%. Blue Bird led gains in taxi company stocks amid positive sentiment over the government regulation of minimum and maximum prices for online car transportation services.
*MLPL +0.9%. Multipolar signed a $250 million loan from Bank Negara Indonesia.
*TINS +0.6%. In 1Q17, Timah posted a net profit of IDR66.5 billion after suffering a loss of IDR138.9 billion in the same period last year.
*ADRO +3.1%. Adaro Energy is rated BBB- with a positive outlook from Japan Credit Agency (JCA).
*ROTI -0.8%. In 1Q17, Nippon Indosari's net profit dropped by 65% yoy to IDR29.9 billion. Meanwhile, sales fell to IDR602.4 billion vs IDR610.9 billion.
Daily write up
Sawit Sumbermas Sarana (SSMS) : Every cloud has a silver lining by Andy Wibowo Gunawan (andy.wibowo@miraeasset.co.id)
- With SSMS still keeping its floor CPO extraction rate at 23.0% for 2017F, we believe its total FFB production will still see domination from nucleus plantation this year.
- As mentioned in our previous report on 2H17F palm oil sector outlook, “Dark clouds on the horizon”, SSMS targets a whopping 150,000 ha in total planted area by 2018 (from just 34,000 ha in 2014).
- Given the S&P’s rating upgrade, SSMS will refinance its bank loans through bond issuance. In our view, this should be a good time for SSMS to refinance its debt due to lower cost of funds going forward.
- We maintain our 12-month forward TP for SSMS at IDR1,900 with a Trading Buy call. We like SSMS mainly thanks to the young age profile of its palm oil plantations.
<Market Headlines>
Lotte Chemical Titan cut IPO targets (Kontan)
Lotte Chemical Titan will do IPO USD1.12bn in Malaysia for expansion in Indonesia.
SGRO targets to increase CPO production by 30% (Kontan)
SGRO targets this year's CPO production volume to increase 20% to 30% compared to last year’s realization.
MNCN to maintain 10% growth performance (Bisnis Indonesia)
MNCN is optimistic to maintain a CAGR of 10% growth in the next 5 years, along with optimism that television industry will still dominate the Indonesian advertising market.
Double digit credit growth in sight (Bisnis Indonesia)
Bank’s credit growth in 1H17 is predicted to reach double digit, and will continue to improve in the next semester.
Multipolar gets a USD250mn of loans (Investor Daily)
PT Multipolar Tbk (MLPL) gets new borrowings amounting USD250mn from PT Bank Negara Indonesia Tbk (BBNI). The proceeds of that loans will be used for refinancing and working capital.
Nusantara Infrastructure will not distribute dividend (Investor Daily)
PT Nusantara Infrastructure Tbk (META) will not distribute dividend. As a note that META’s net profit reached IDR220bn in 2016.
(Jakarta Post)
JCI at full throttle after long break
Inflationary pressure may recede as food prices ease off
Foreign tourists: Despite tension, RI sees jump in arrivals
RI eyes euro bond issuance amid rating upgrade, stable market
Govt to lobby FPNI to realize investment
Coal price recovery encourages BYAN to aim higher
(Jakarta Globe)
Indonesian diaspora network presents leadership award to Jokowi for looking after expats
Indonesia to join FATF in war against money laundering and terrorism funding
Indonesia’s inflation rate picks up slightly in June
Indonesia hopes for additional USD10bn inflows after S&P upgrade, president says
It’s 7-eleven Indonesia, not the retail industry: Fitch
Most SE Asia stocks gain as China data cheers, Indonesia at record closing high

TOKYO -- Stocks and bonds pulled back noticeably toward the end of the week, as stock investors worldwide came to the realization that the U.S. and European central banks could start cutting back on their monetary easing programs sooner than they had thought.

The Nikkei Stock Average dipped below 20,000 temporarily Friday for the first time in about two weeks. Greater than expected consumer price growth has fueled prospects for the European Central Bank to taper monetary easing. Surplus funds have spurred market upticks since the start of the year, but that optimism now must be reassessed.

TOKYO -- Stocks and bonds pulled back noticeably toward the end of the week, as stock investors worldwide came to the realization that the U.S. and European central banks could start cutting back on their monetary easing programs sooner than they had thought.
The Nikkei Stock Average dipped below 20,000 temporarily Friday for the first time in about two weeks. Greater than expected consumer price growth has fueled prospects for the European Central Bank to taper monetary easing. Surplus funds have spurred market upticks since the start of the year, but that optimism now must be reassessed.

Sales realization among retailers until second week of June have not shown better performance compared to same period last year. However, retailers such as Ramayana and Matahari are still optimistic to book good performance during 2Q17. On the separate news, Jokowi will ensure all civil servants to receive their religious holiday allowance (THR) the latest by today, which we think might encourage consumer to spend. Therefore, maintain BUY on RALS and *LPPF*. (Bisnis Indonesia, Investor Daily)

Disclaimer on

20062017 (4)
IndoPremier
Sales realization among retailers until second week of June have not shown better performance compared to same period last year. However, retailers such as Ramayana and Matahari are still optimistic to book good performance during 2Q17. On the separate news, Jokowi will ensure all civil servants to receive their religious holiday allowance (THR) the latest by today, which we think might encourage consumer to spend. Therefore, maintain BUY on RALS and *LPPF*. (Bisnis Indonesia, Investor Daily)
Disclaimer on

Yesterday we attended PRDA’s analyst meeting and took some key takeaways:
• 2H17 progress development as follows: 1) 7-8 clinical labs; 2) one specialty clinic, PWHC in Jakarta (another one, PSHC, to open in 4Q17); 3) Jakarta regional reference lab; 4) 13-14 Point of care (POC); 4) 2 hospital labs. Reference lab in Medan is expected to finish in 2017 while the construction of Semarang reference lab to start in 2018 and fully operational in 2019. ...See More
• Company highlights opportunity to collaborate with premium insurance and regional hospital to increase number of esoteric and utilization rate. Note that company has added 4 new tests in esoteric. Company will also starts operation next generation lab in Jakarta in June 2017 which will focus on personalized medicine.
• Company is preparing for collection of cancer screenings test types which will be used to work together with BPJS. Company mentioned enormous demand from BPJS, but will cautiously select the project as it tend to have lower test per patient.
Reiterate BUY on PRDA on the back of in line execution plan and solid company’s plan. PRDA is now trading cheap at EV/EBITDA FY17F of 13.4x, lower compared to its peers, MIKA at 28.8x and SILO at 18.8x EV/EBITDA FY17 on Bloomberg consensus, reiterate BUY.

Disclaimer on

20062017 (5)
IndoPremier
Yesterday we attended PRDA’s analyst meeting and took some key takeaways:
• 2H17 progress development as follows: 1) 7-8 clinical labs; 2) one specialty clinic, PWHC in Jakarta (another one, PSHC, to open in 4Q17); 3) Jakarta regional reference lab; 4) 13-14 Point of care (POC); 4) 2 hospital labs. Reference lab in Medan is expected to finish in 2017 while the construction of Semarang reference lab to start in 2018 and fully operational in 2019.
• Company highlights opportunity to collaborate with premium insurance and regional hospital to increase number of esoteric and utilization rate. Note that company has added 4 new tests in esoteric. Company will also starts operation next generation lab in Jakarta in June 2017 which will focus on personalized medicine.
• Company is preparing for collection of cancer screenings test types which will be used to work together with BPJS. Company mentioned enormous demand from BPJS, but will cautiously select the project as it tend to have lower test per patient.
Reiterate BUY on PRDA on the back of in line execution plan and solid company’s plan. PRDA is now trading cheap at EV/EBITDA FY17F of 13.4x, lower compared to its peers, MIKA at 28.8x and SILO at 18.8x EV/EBITDA FY17 on Bloomberg consensus, reiterate BUY.
Disclaimer on

ADHI is seeking *IDR1.5t building construction contract* from the new LPCK’s *Meikarta project*. The apartment project is expected to start in 2H17 but will not entirely completed this year. Currently company is on the discussion to secure the payment terms with LPCK, according to CFO. Note ADHI 5M17 new contract was IDR5.3t or 23% of FY17 internal target and management predicts the new contract realization 6M17 will reach 45% of FY17 target. In addition, co delayed to spin-off Adhi Persada Gedung to 1Q18.

ADHI to issue 5-year IDR3.5t bond with coupon rate of 9.25%. The bond will be listed on 3 Jul-17. Co will allocate IDR500b proceeds to repay the outstanding debt and the rest for working capital ie. LRT project.

ADHI is seeking *IDR1.5t building construction contract* from the new LPCK’s *Meikarta project*. The apartment project is expected to start in 2H17 but will not entirely completed this year. Currently company is on the discussion to secure the payment terms with LPCK, according to CFO. Note ADHI 5M17 new contract was IDR5.3t or 23% of FY17 internal target and management predicts the new contract realization 6M17 will reach 45% of FY17 target. In addition, co delayed to spin-off Adhi Persada Gedung to 1Q18.
ADHI to issue 5-year IDR3.5t bond with coupon rate of 9.25%. The bond will be listed on 3 Jul-17. Co will allocate IDR500b proceeds to repay the outstanding debt and the rest for working capital ie. LRT project.

-- Moody's Investors Service has changed its...See More
outlook on the Indonesian banking system to positive from stable, reflecting their view that banks will see improvements in their
operating environment, asset quality, as well as the capacity by the government to extend support when necessary.

"Indonesian banks will benefit from an improving operating environment
in the coming 12-18 months, as economic growth picks up due to
supporting macroeconomic policies and a stronger market for the country's key commodities," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.

Moody's assessment of Indonesia's banking system is based on five
factors: operating environment (improving); asset quality and capital
(improving/stable); funding and liquidity (stable); profitability and
efficiency (improving); and systemic support (improving).

The operating environment for the banks is, as indicated, improving on
supporting macroeconomic policies and a stronger market for the country's key commodities..

Asset quality will improve, driven by a recovery in corporate revenues
that should constrain further rises in loan delinquency. Furthermore,
this trend is accompanied by falling debt levels, which should result in
stronger debt servicing capacity.

Funding and liquidity for the banking system will be stable. The pressure from faster loan growth will be modest overall as bank deposits will also be growing at a similar pace.

The system's loan to deposit ratio (LDR) should stabilize at the 90%
level, from 89% at end-March 2017. Yet some banks could see their LDR
approach the regulatory LDR limit of 92%.

Indonesian banks have little reliance on wholesale funding, and their balance sheets are liquid with government securities and other liquid assets comprising 27% of banking system assets at end-March 2017. All Moody's rated banks comfortably meet minimum Liquidity Coverage Ratio (LCR) requirements.

The banks' loan profitability will continue to be supported by net interest margins of around 5.3%, the widest amongst Indonesia's peers. Another profit contribution will come from lower credit costs, which took a heavy toll on earnings in 2016.

Moody's further notes that system support is improving as the government's capacity to support banks benefits from the country's
declining vulnerability to external shocks and lengthening track record
of macroeconomic stability and fiscal discipline.

Moody's considers Indonesia a high support system, because of the importance of the banking system to the overall economy, as well as the government's demonstrated past records of systemic support.

Moody's rates nine banks in Indonesia. These banks accounted for 64% of
total system assets as of end-March 2017. The standalone baseline credit
assessments (BCA) of the nine banks range from ba2 to baa3, with an asset-weighted average of ba1.

*Moody's changes outlook for Indonesian banking system to positive from stable*
2017-06-13 03:04:04.954 GMT
Singapore, June 13, 2017
-- Moody's Investors Service has changed its
outlook on the Indonesian banking system to positive from stable, reflecting their view that banks will see improvements in their
operating environment, asset quality, as well as the capacity by the government to extend support when necessary.
"Indonesian banks will benefit from an improving operating environment
in the coming 12-18 months, as economic growth picks up due to
supporting macroeconomic policies and a stronger market for the country's key commodities," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.
"Our baseline scenario assumes real GDP growth in Indonesia of 5.2% in
2017 and 5.3% in 2018, compared to 5.0% in 2016," adds Vadlamani.
Moody's conclusions are contained in its just-released Banking System
Outlook for Indonesia, "Improving Operating Environment Drives Positive Outlook".
Moody's assessment of Indonesia's banking system is based on five
factors: operating environment (improving); asset quality and capital
(improving/stable); funding and liquidity (stable); profitability and
efficiency (improving); and systemic support (improving).
The operating environment for the banks is, as indicated, improving on
supporting macroeconomic policies and a stronger market for the country's key commodities..
Asset quality will improve, driven by a recovery in corporate revenues
that should constrain further rises in loan delinquency. Furthermore,
this trend is accompanied by falling debt levels, which should result in
stronger debt servicing capacity.
In addition, despite potential faster loan growth, capitalization at
Indonesian banks will remain broadly stable -- their structurally high
core profitability and loan loss coverage ratios provide them with strong buffers to withstand asset quality deterioration, which in our view has already peaked.
Funding and liquidity for the banking system will be stable. The pressure from faster loan growth will be modest overall as bank deposits will also be growing at a similar pace.
The system's loan to deposit ratio (LDR) should stabilize at the 90%
level, from 89% at end-March 2017. Yet some banks could see their LDR
approach the regulatory LDR limit of 92%.
Indonesian banks have little reliance on wholesale funding, and their balance sheets are liquid with government securities and other liquid assets comprising 27% of banking system assets at end-March 2017. All Moody's rated banks comfortably meet minimum Liquidity Coverage Ratio (LCR) requirements.
The banks' loan profitability will continue to be supported by net interest margins of around 5.3%, the widest amongst Indonesia's peers. Another profit contribution will come from lower credit costs, which took a heavy toll on earnings in 2016.
Moody's further notes that system support is improving as the government's capacity to support banks benefits from the country's
declining vulnerability to external shocks and lengthening track record
of macroeconomic stability and fiscal discipline.
Moody's considers Indonesia a high support system, because of the importance of the banking system to the overall economy, as well as the government's demonstrated past records of systemic support.
Moody's rates nine banks in Indonesia. These banks accounted for 64% of
total system assets as of end-March 2017. The standalone baseline credit
assessments (BCA) of the nine banks range from ba2 to baa3, with an asset-weighted average of ba1.
The local and foreign currency deposits for Bank Central Asia Tbk (P.T.), Bank Tabungan Negara (P.T.), PT Bank
CIMB Niaga Tbk, Bank Rakyat Indonesia (P.T.), Bank Mandiri (P.T.), Bank
Danamon Indonesia TBK (P.T.) and Bank Negara Indonesia TBK (P.T.) are
all rated Baa3 and the outlooks for their ratings are positive, with the
exception of Bank Permata TBK (P.T.) (Baa3 negative, ba2) and Pan Indonesia Bank TBK (P.T.) (Baa3 stable, ba2)
*******

From RX
Today's Highlights
****************sales commentary*****************
May cement volume indicated INTP benefited from improvement in retail spending in ex-Java on the back of better commodity prices, as evidenced by INTP’s market share gain in ex-Java and healthy bag volumes increase of 6.5% YoY. Meanwhile SMGR benefits more from infra projects in Java judging from its better performance in bulk volume in Java. The sector remains underowned with potential for earnings upgrade and beneficiary of anticipated higher public spending in 2H and property cycle. Key to watch is the industry utilization rate which should bottom in 2017. INTP chunky 88% dividend payout recently also signal the end of capacity expansion, and should ease concern on additional supply. Nathania maintains Outperform on the sector, with preference on Java-centric INTP. At 19x PE still attractive in the context of trough earnings.
Cement: sign of commodity-led recovery? ...See More
SMGR reported steady volumes in May 2017, with domestic sales growing at 3.6% YoY vs 4M17 at 4.1% YoY. We note that the incumbent also lost market share on a MoM basis from 41.8% to 40.0%, due to competition in Central and Eastern Java. Note that its peer Indocement (INTP IJ, Rp17,800, Outperform, TP: Rp18,800), in contrast, reported a MoM market share gain. Meanwhile, its ex-Java YoY growth trends seem to be mirroring those of the sector, with improvement in Sumatra but weaker demand in Sulawesi.
Beneficiary of bulk demand, but losing bag volume momentum. SMGR's bulk volumes increased by 16% YoY and bag decreased by 3% YoY. In contrast, INTP's bag volumes are doing relatively better at 6.5% YoY and bulk volumes doing fairly at 4.1% YoY. Marrying this data point with INTP's strong market share grab in ex-Java, we believe that INTP has benefited from the improvement in retail spending in ex-Java on the back of a better commodities environment. Meanwhile, SMGR is a bigger beneficiary of the infra projects speeding up in Java, and hence the better performance in bulk volumes.
Prices steadying, but May a seasonally strong month for price. The pricing decline reversed by +0.1% MoM, but we still need to see further improvements in the coming month to note this as a trough. May is also seasonally a strong month in terms of prices.
SMGR reported domestic and total sales volume growth of 3.6% and 9.6% YoY, respectively, for the month of May. Its domestic volume growth is trailing behind the sector's 6.6% YoY improvement.
Java biggest growth contributor, but market share seems to be falling. The biggest growth contributor is from the Java-centric Semen Gresik brand, with 8.8% YoY. However, this figure is trailing further behind the industry's improvement of 11.7%. We also note that the industry's Java volumes grew by 11.3% MoM, whereas Gresik only posted a 2.6% MoM improvement.
Sumatra and Sulawesi gaining market share, but mixed demand momentum. Meanwhile, its Sumatra-based Semen Padang rebounded to 5.8% YoY growth after consecutive months of YoY declines since Sept 2016. Sulawesi-based brand Tonasa, however, reported another bad month with -12% YoY. On a MoM basis, however, the industry did worse than the incumbent.
Bulk supporting overall demand. Bag volumes fell 2.6% YoY for the month, while bulk volumes posted a healthy growth at 16.3% YoY. This is a contrast to what its peer INTP reported, with bag and bulk both up by 6.5% and 4.1% YoY.
Also read:
Indocement (INTP IJ) - 5M17: Healthy volumes with MoM market share grab
Indonesia cement – 4M17: clear improvements led by Java
Indonesia cement sector - Java making a comeback?

From RX
Today's Highlights
****************sales commentary*****************
May cement volume indicated INTP benefited from improvement in retail spending in ex-Java on the back of better commodity prices, as evidenced by INTP’s market share gain in ex-Java and healthy bag volumes increase of 6.5% YoY. Meanwhile SMGR benefits more from infra projects in Java judging from its better performance in bulk volume in Java. The sector remains underowned with potential for earnings upgrade and beneficiary of anticipated higher public spending in 2H and property cycle. Key to watch is the industry utilization rate which should bottom in 2017. INTP chunky 88% dividend payout recently also signal the end of capacity expansion, and should ease concern on additional supply. Nathania maintains Outperform on the sector, with preference on Java-centric INTP. At 19x PE still attractive in the context of trough earnings.
Cement: sign of commodity-led recovery?
SMGR reported steady volumes in May 2017, with domestic sales growing at 3.6% YoY vs 4M17 at 4.1% YoY. We note that the incumbent also lost market share on a MoM basis from 41.8% to 40.0%, due to competition in Central and Eastern Java. Note that its peer Indocement (INTP IJ, Rp17,800, Outperform, TP: Rp18,800), in contrast, reported a MoM market share gain. Meanwhile, its ex-Java YoY growth trends seem to be mirroring those of the sector, with improvement in Sumatra but weaker demand in Sulawesi.
Beneficiary of bulk demand, but losing bag volume momentum. SMGR's bulk volumes increased by 16% YoY and bag decreased by 3% YoY. In contrast, INTP's bag volumes are doing relatively better at 6.5% YoY and bulk volumes doing fairly at 4.1% YoY. Marrying this data point with INTP's strong market share grab in ex-Java, we believe that INTP has benefited from the improvement in retail spending in ex-Java on the back of a better commodities environment. Meanwhile, SMGR is a bigger beneficiary of the infra projects speeding up in Java, and hence the better performance in bulk volumes.
Prices steadying, but May a seasonally strong month for price. The pricing decline reversed by +0.1% MoM, but we still need to see further improvements in the coming month to note this as a trough. May is also seasonally a strong month in terms of prices.
SMGR reported domestic and total sales volume growth of 3.6% and 9.6% YoY, respectively, for the month of May. Its domestic volume growth is trailing behind the sector's 6.6% YoY improvement.
Java biggest growth contributor, but market share seems to be falling. The biggest growth contributor is from the Java-centric Semen Gresik brand, with 8.8% YoY. However, this figure is trailing further behind the industry's improvement of 11.7%. We also note that the industry's Java volumes grew by 11.3% MoM, whereas Gresik only posted a 2.6% MoM improvement.
Sumatra and Sulawesi gaining market share, but mixed demand momentum. Meanwhile, its Sumatra-based Semen Padang rebounded to 5.8% YoY growth after consecutive months of YoY declines since Sept 2016. Sulawesi-based brand Tonasa, however, reported another bad month with -12% YoY. On a MoM basis, however, the industry did worse than the incumbent.
Bulk supporting overall demand. Bag volumes fell 2.6% YoY for the month, while bulk volumes posted a healthy growth at 16.3% YoY. This is a contrast to what its peer INTP reported, with bag and bulk both up by 6.5% and 4.1% YoY.
Also read:
Indocement (INTP IJ) - 5M17: Healthy volumes with MoM market share grab
Indonesia cement – 4M17: clear improvements led by Java
Indonesia cement sector - Java making a comeback?
Indonesia’s most downloaded reports:
ASEAN Banks - FinTech: Opportunity and threat
Indonesia e-commerce - Enter Alibaba, Amazon
Matahari Department Store - Risks priced in
Bank Mandiri - The long road to redemption
United Tractors - Digging out of the bad days
Indonesia banks - As the loan restructuring party ends

Bahana (DX)
Recommendation & outlook: *Upgrade sector to NEUTRAL and JPFA to BUY*
At this stage, we are upgrading our sector view to NEUTRAL as the government takes a more proactive approach to stabilizing chicken prices, but the effect is yet to be seen. In our view, the 5-day culling program will only support broiler prices temporarily (1-2 weeks), unlike the culling initiation program at end-2015, where the government required the culling of up to 6mn parent stock (PS) that can lead to lower FS production over one semester.

On stock picks, we are maintaining our preference for *JPFA within the sector*, given its attractive valuation, low net gearing level, well-diversified business, and the main beneficiary of stable chicken prices given its highest sales exposure to broiler and DOC products. As their share prices have corrected with limited downside potential to our target prices, we are upgrading CPIN (CPIN IJ, IDR3,030, HOLD) and MAIN (MAIN IJ, IDR1,095, HOLD) to HOLD with unchanged TPs of IDR2,900 (15x FY17F PE) and IDR1,100 (8.5x FY17F PE), while for JPFA (JPFA IJ, IDR1,295, BUY), we *upgrade to BUY from HOLD with an unchanged TP of IDR1,700* (12x FY17F PE). ...See More
Upside risks: Successful government implementation on supply stabilization and stronger IDR. Downside risks: Unsustainable chicken prices post the culling effect and high domestic corn prices.

Bahana (DX)
Recommendation & outlook: *Upgrade sector to NEUTRAL and JPFA to BUY*
At this stage, we are upgrading our sector view to NEUTRAL as the government takes a more proactive approach to stabilizing chicken prices, but the effect is yet to be seen. In our view, the 5-day culling program will only support broiler prices temporarily (1-2 weeks), unlike the culling initiation program at end-2015, where the government required the culling of up to 6mn parent stock (PS) that can lead to lower FS production over one semester.
On stock picks, we are maintaining our preference for *JPFA within the sector*, given its attractive valuation, low net gearing level, well-diversified business, and the main beneficiary of stable chicken prices given its highest sales exposure to broiler and DOC products. As their share prices have corrected with limited downside potential to our target prices, we are upgrading CPIN (CPIN IJ, IDR3,030, HOLD) and MAIN (MAIN IJ, IDR1,095, HOLD) to HOLD with unchanged TPs of IDR2,900 (15x FY17F PE) and IDR1,100 (8.5x FY17F PE), while for JPFA (JPFA IJ, IDR1,295, BUY), we *upgrade to BUY from HOLD with an unchanged TP of IDR1,700* (12x FY17F PE).
Upside risks: Successful government implementation on supply stabilization and stronger IDR. Downside risks: Unsustainable chicken prices post the culling effect and high domestic corn prices.

Potential recovery ahead would hinge on whether we see stabilization of saturation in the legacy segment. Voice and SMS have been falling at an average rate of 10% per quarter. Further deceleration would need to be compensated by significant acceleration in data segment. This would need to come from further cut in data allowance. Success of data monetization would hinge on finding the right balance between bonus quota reduction and consumption elasticity. With the highest data user and data consumption per subscriber/month, further reduction in data allowance might be the right button to push. This, however, would be a challenging task to deliver in the subsequent quarter, as it would translate to at least one quarter of high single digit revenue growth and two quarters of 15%-16% YoY revenue growth in order to achieve its 2017F target of rowing in line with the sector average of 8%-9%. As such, we maintain our cautious optimistic stance on EXCL. Reiterate HOLD with unchanged TP of IDR3,000.

Potential recovery ahead would hinge on whether we see stabilization of saturation in the legacy segment. Voice and SMS have been falling at an average rate of 10% per quarter. Further deceleration would need to be compensated by significant acceleration in data segment. This would need to come from further cut in data allowance. Success of data monetization would hinge on finding the right balance between bonus quota reduction and consumption elasticity. With the highest data user and data consumption per subscriber/month, further reduction in data allowance might be the right button to push. This, however, would be a challenging task to deliver in the subsequent quarter, as it would translate to at least one quarter of high single digit revenue growth and two quarters of 15%-16% YoY revenue growth in order to achieve its 2017F target of rowing in line with the sector average of 8%-9%. As such, we maintain our cautious optimistic stance on EXCL. Reiterate HOLD with unchanged TP of IDR3,000.

WSBP achieved IDR300bn loan from BRI syariah (Investor Daily)
WSBP has signed a loan facility of IDR300bn from Bank BRI Syariah. The loan will be used for financing the 2nd section of Cimanggis-Cibitung Toll Ways project.

June, PPRO aims to get marketing sales of IDR1.3tr (Investor Daily)
PPRO projects its marketing sales to reach IDR 1.2-1.3 trillion in June 2017. Until the end of April, marketing sales of PTPP subsidiaries has reached IDR900bn.

...See More
PT Siloam International Hospitals Tbk. (“Siloam”) today announces the acquisition of Rumah Sakit Umum Putera Bahagia (“RSUPB”) in Cirebon, subject to final due diligence review results. The acquisition will be made through 100% purchase by Siloam of RSUPB, in the amount of Rp 130 billion.

RSUPB is a 105 bed capacity hospital in Cirebon, West Java, a port city on the north coast of Java island approximately 297 km east of Jakarta. The hospital operates in a 8,209 sqm four story building on 5,329 sqm land, both owned by RSUPB. The hospital, which has been registered to assist BPJS Kesehatan patients, serves around 6,000 out-patient visits and around 340 in-patient admissions monthly. The 100 operational beds currently running at 63% occupancy rate generating IDR 63 bn annually. Going forward Siloam plans to expand the bed capacity and to improve the facility and services by installing state-of-the-art medical equipment such as MRI and CT-Scan.

Ketut Budi Wijaya, President Director of Siloam stated, "Cirebon as the new growth centre in the east of West Java has a very huge potential. There are two infrastructure megaprojects under construction within a radius of 60 km from Cirebon, Kertajati International Airport and Patimban deep-sea port. For that reason, we are very delighted to include Rumah Sakit Umum Putera Bahagia to our portfolio. This acquisition will immediately contribute to the top line of the company. Importantly, this acquisition will further strengthen Siloam’s presence in West Java being the 10th hospital located in the most populous province in Indonesia with population of 47 million. This will help Siloam expand its portfolio of product and service offerings to their constituents across not only Java island but also Indonesia.”

Siloam is a subsidiary of PT Lippo Karawaci Tbk (“LPKR”), the largest listed property company in Indonesia by total assets and revenues, anchored by a large land bank and solid recurring income base. LPKR's businesses comprise Residential/Township, Retail Malls, Hospitals, Hotels and Asset Management.

Siloam now operates 26 hospitals, 16 clinics in 19 cities throughout the country, and 5,300 beds capacities supported by more than 2,400 specialists and general practitioners as well as over 8,600 nurses and support staff. It is also the first JCI accredited hospital in Indonesia and a repeat winner of “Frost & Sullivan, Indonesia’s Healthcare Service Provider of the Year”. Siloam is listed on the Indonesian Stock Exchange under the ticker name “SILO” and a market capitalization of Rp 15.3 trillion or USD 1,154.5 million as of May 22, 2017.

#SILO
SILOAM ACQUIRES PRIVATE GENERAL HOSPITAL IN CIREBON FOR RP 130 BILLION.
Lippo Village, Tangerang, Indonesia
Tuesday, 23 May 2017
PT Siloam International Hospitals Tbk. (“Siloam”) today announces the acquisition of Rumah Sakit Umum Putera Bahagia (“RSUPB”) in Cirebon, subject to final due diligence review results. The acquisition will be made through 100% purchase by Siloam of RSUPB, in the amount of Rp 130 billion.
RSUPB is a 105 bed capacity hospital in Cirebon, West Java, a port city on the north coast of Java island approximately 297 km east of Jakarta. The hospital operates in a 8,209 sqm four story building on 5,329 sqm land, both owned by RSUPB. The hospital, which has been registered to assist BPJS Kesehatan patients, serves around 6,000 out-patient visits and around 340 in-patient admissions monthly. The 100 operational beds currently running at 63% occupancy rate generating IDR 63 bn annually. Going forward Siloam plans to expand the bed capacity and to improve the facility and services by installing state-of-the-art medical equipment such as MRI and CT-Scan.
Ketut Budi Wijaya, President Director of Siloam stated, "Cirebon as the new growth centre in the east of West Java has a very huge potential. There are two infrastructure megaprojects under construction within a radius of 60 km from Cirebon, Kertajati International Airport and Patimban deep-sea port. For that reason, we are very delighted to include Rumah Sakit Umum Putera Bahagia to our portfolio. This acquisition will immediately contribute to the top line of the company. Importantly, this acquisition will further strengthen Siloam’s presence in West Java being the 10th hospital located in the most populous province in Indonesia with population of 47 million. This will help Siloam expand its portfolio of product and service offerings to their constituents across not only Java island but also Indonesia.”
Siloam is a subsidiary of PT Lippo Karawaci Tbk (“LPKR”), the largest listed property company in Indonesia by total assets and revenues, anchored by a large land bank and solid recurring income base. LPKR's businesses comprise Residential/Township, Retail Malls, Hospitals, Hotels and Asset Management.
Siloam now operates 26 hospitals, 16 clinics in 19 cities throughout the country, and 5,300 beds capacities supported by more than 2,400 specialists and general practitioners as well as over 8,600 nurses and support staff. It is also the first JCI accredited hospital in Indonesia and a repeat winner of “Frost & Sullivan, Indonesia’s Healthcare Service Provider of the Year”. Siloam is listed on the Indonesian Stock Exchange under the ticker name “SILO” and a market capitalization of Rp 15.3 trillion or USD 1,154.5 million as of May 22, 2017.